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Indexed UL-funded retirement income: 9 questions answered

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LifeHealthPro Senior Editor Warren S. Hersch recently interviewed Jason Konopik, chief financial officer of AMZ Financial Insurance Services, a national wholesaler of indexed universal life (IUL) products. The interview explored the product development and other services AMZ Financial offers life insurers and producers. And it examined how IUL solutions are evolving to better meet clients’ retirement income needs. The following are excerpts.

Hersch: Tell me about your professional background and how you ended up at AMZ Financial? What expertise do you bring to the company?

Konopik: I’m a product actuary by training. I previously headed up product development at Amerus Group, which specialized in indexed products, including indexed universal life insurance and fixed indexed annuities. Ten years ago, I left Amerus Group to become a partner at AMZ Financial, then a national wholesaler of life insurance products.

When I joined AMZ, the company pivoted from a narrow focus on product wholesaling, training and support for producers to helping carriers with their product development, primarily in respect to indexed universal life — a product that few carriers then offered. Over last 10 years, we’ve worked with about a dozen insurers on their IUL development initiatives.

Hersch: What specific expertise do you offer carriers?

Konopik: On the low end, we provide what we call reactive services: market intelligence and feedback on IUL product development efforts already underway.

For example, the 10- or 20-year cash surrender value for a prototype product may look good from a carrier’s perspective. But this surrender value may not be enough to boost interest among agents and brokers who are more interested in long-term cash accumulation needed to fund a retirement income plan. So we might suggest changes to the product to support this goal.

Alternatively, a carrier might tap us to assist in product development from the start of the process. We developed a patent-pending feature about 5 years ago and then approached insurers about adding the feature to their product portfolio. One carrier, Minnesota Life, agreed to do so and signed a patent-usage agreement. We were then deeply involved in building the product to support the new feature.

Hersch: Who on AMZ’s staff offers this product development expertise?

Konopik: I provide the actuarial component. Other AMZ staffers carry out additional support functions for producers and carriers: market intelligence, sales, product distribution, training and education. We have 29 employees on staff, including employees with expertise in wholesaling, competitive intelligence and producer support.

On the wholesaling side of the house, we’re on target to do $40 million in life insurance sales this year, most of the revenue generated by indexed UL products. We also support all traditional UL and variable life products, as well as annuities, including SPIAs, DIAs and fixed indexed products.

Hersch: Why the strong emphasis at AMZ on indexed UL solutions?

Konopik: Indexed UL has been one of the industry’s fastest-growing products since I’ve been in the business. The product holds much potential for further innovations — changes that will better meet the needs of clients and boost sales for producers.

Hersch: How have IUL products evolved since they were first introduced a decade ago?

Konopik: When they rolled out the first wave products, carriers simply attached an index chassis to a conventional universal life policy and declared it an IUL product. The only change was in how interest was credited. That was enough to generate incremental sales, but not enough to take full advantage of what an index chassis can do for clients.

Carriers’ lack of understanding about the IUL’s full potential represented an opportunity for us: to educate their product development people about modifications that could be made to the chassis — in particular, the index crediting mechanism — so as to maximize long-term cash accumulation and income payments to the policyholder.

The trade-off resulting from these changes is a reduced death benefit paid to policy beneficiaries. So this type of IUL product is for individuals who are more focused on funding retirement income needs than on providing a legacy for heirs.

Hersch: How else have indexed UL products evolved?

Konopik: A second wave of IUL products introduced additional living benefits, such as riders offering financial protection for those suffering from a critical or chronic illness. Some of the new features hold long-term value for a policyholder; others are more window-dressing — features that let producers more easily sell policy benefits.

Hersch: Given clients’ desire for cash accumulation and thereafter an income stream, would it not be equally advantageous to go with a traditional UL product offering a greater death benefit, and supplementing the policy with a fixed indexed annuity?

Konopik: That’s certainly one approach, but most IUL buyers have two primary concerns: (1) insulating themselves against market volatility; and (2) immunizing themselves from future tax law changes. An IUL policy is better able to accomplish these twin goals than alternative solutions, first because the policy locks in a percentage of stock market gains; and second because policy withdrawals and loans are distributed income tax-free.

Add to this the fact that IUL is self-completing: should the policyholder die premature, the retirement bucket — the death benefit — goes to the surviving beneficiaries. There’s really nothing else out there that can provide all three benefits.

Hersch: What further developments can we expect in the IUL space? How will the products evolve going forward?

Konopik: IUL manufacturers have always focused on generating tax-free income. But IUL’s analog, the fixed indexed annuity, provides guaranteed income. I believe this will be a major focus in the IUL space in the next several years: developing products that not only provide tax-free income, but also a guarantee on distributions — and thereby peace of mind for policyholder entering their golden years.

Hersch: What will it take to get to this next generation of products? What obstacles might have to be surmounted?

Konopik: The biggest hurdle to providing guaranteed income relates to reserve methodologies that insurers to insure future benefits. On the taxation side, the challenge is to structure the policy so as to provide a guaranteed, tax-free income stream compliant with Internal Revenue Code Section 7702.



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